A select few lenders now offer interest only mortgages exclusively for those of us that are retired. 20 years ago finding mortgages for anyone over 50 was a stretch, let alone mortgages in retirement; especially interest only ones! Instead many released equity and for some it worked and for others it didn’t, but this was a catalyst for lenders like Nationwide, Lloyds and Halifax to develop mortgage products for retirees.
Infact nearly all the big boys & girls on the high street offer interest only mortgages but criteria and rates do differ wildly between them – so lets run through the lot and see whats what!
What is a retirement interest only [RIO] mortgage?
As the name suggests a retirement interest only mortgage [RIO] is an interest only mortgage product available only to retirees. Interest only means that the mortgage has no capital repayments and as such repayments are usually cheaper.
This can be great for a number of reasons such as improving monthly cashflows, and/or then using that excessive capital to maybe invest in other things; or simply not having to draw down as much of any pensions you have to make the mortgage payments.
Are retirement interest only mortgages a good idea?
- Versus doing equity release it can have significant advantages
- Cashflow positive versus capital repayment mortgages
- Interest rates are currently still historically low
- Piece of mind – by paying the interest your total mortgage debt will remain fixed over time.
#3 things to consider before taking out a R.I.O mortgage?
- Exit plan – how will you pay off the mortgage at the end of the agreed term? This could be as simple as selling the property, or perhaps you want to keep ownership of the property and decide to use cash savings or investments to pay off the loan. However you ever decide to do it is fine, as long as you have a plan in place.
- The longer the mortgage term the less the monthly mortgage repayments will be…
- If interest rates go up or there are unforeseen changes to your circumstances such as the requirement for care, can you still afford the monthly mortgage repayments?
Halifax Retirement Interest Only Mortgages
Halifax has a great option to consider for what they call ‘later life lending’. They have a specific mortgage offering called the Retirement Interest Only, or R.I.O mortgage.
They list a few need to know things here:
- ‘‘Unlike a Repayment Mortgage, there is no fixed end date to repay the balance’’ – this is great then for anyone looking to keep their options open ended.
- ‘‘You will be required to keep paying the interest until the loan is repaid which could be longer than a normal mortgage’’ – whilst the interest payments will be less, each month, than a normal ‘capital repayment mortgage’ the duration of those payments could be longer.
Lloyds Bank Retirement Interest Only Mortgages
The good news is Lloyds do offer a retirement interest only mortgage and it’s available on their website, the criteria though is essentially identical to Halifax. This is because both Lloyds and Halifax are part of the same banking group. For that reason please refer to the Halifax criteria above.
Barclays Interest Only Retirement Mortgages
Barclays actually don’t have an interest only mortgage designed just for retirees, they just offer a standard ‘interest only mortgage’. The criteria is relatively tough, lets run through it below:
- If you are applying alone you are required to have an income of £75,000 per annum or if you are applying jointly you are required to have a combined total income of £100,000 per annum.
- You will be required to show how you intend to repay the loan once the mortgage term finishes.
- If you’re buying a property rather than remortgaging, Barclays will tell you the deposit size that will be required.
For the reasons stated above there are other, more popular, interest only mortgages than the Barclays one.
Nationwide Retirement Interest Only Mortgages
Nationwide probably offers the best selection of mortgages in the U.K, so it’s only natural that they would have a super retirement interest only mortgage product.
The money you borrow only has to be repaid once the last remaining borrower dies or goes into long term care.
With Nationwide’s retirement interest only mortgage you can borrow:
- Up to a maximum of £500,000
- A minimum of £10,000 or £1,000 if switching your existing Nationwide mortgage to a RIO mortgage without borrowing anymore.
- Up to 50% loan to value (LTV).- so for example if you home was valued at £500,000 you could borrow up to a maximum of 50% of the value, i.e £250,000.
The really great thing about Nationwide Retirement Interest Only Mortgages is there are no product fees attached to the mortgage.
With other lenders these can be from £500-£1000. It’s also very easy to transition from another mortgage to a RIO mortgage with Nationwide and you also have the flexibility to overpay up to 10% of the loan amount each year, without incurring any charges.
Plus Nationwide offer such a large range of ‘later life’ mortgages that it’s possible to take another mortgage out even into your 70’s.
For that reason Nationwide are top of our list for a retirement interest only mortgage.
Retirement Interest Only Mortgage Rates
Nationwide probably offers the most competitive rates, but their rates do vary depending on whether you choose a fixed or variable mortgage. The longer you fix the rates for, either 2, 5 or 10 years, the higher the interest rate is.
Using our mortgage calculator you can see the difference that the varying rates have on the amount you’ll pay each month.
Source: Nationwide Building Soc
The example below infers a £100,000 interest only mortgage with a mortgage term of 20 years:
2.39% = repayments of £199
2.59% = repayments of £216
3.39% = repayments of £283
Just 1% difference in the interest rates equates to £84 per month. Over a 20 year mortgage that’s £20,160!